State Examiners’ Update December 2, 2010

1. State Examiners’ UpdateDecember 2, 2010 Presented by: Teresa W. Durrett, CPA Assistant Director, County Audit Division Examiners of Public Accounts State of Alabama

2. State Four Cent Gasoline Tax

3. State 4 Cent Gasoline Tax Issues • All road department salaries and equipment paid from Gasoline Tax Fund (7 cent gas tax) • RRR Fund reimburses Gasoline Tax Fund for RRR projects • Fall/Winter – very few RRR projects due to weather • Spring/Summer – most of RRR projects done during this time

4. State 4 Cent Gasoline Tax Issues • Most of the time, more RRR projects than 4 cent money available • Upon completion of a RRR project, the County Engineer should submit claim for reimbursement from the Gasoline Tax Fund to the County Administrator • Set up an Interfund Receivable/Payable

5. GASB Statement No. 51 Accounting and Financial Reporting for Intangible Assets

6. Overview of GASB Statement 51 • Governments possess many different types of assets that may be considered intangible assets • Easements • Water and Timber Rights • Patents and Trademarks • Computer Software • The objective of the Statement is to establish accounting and financial reporting requirements of intangible assets for state and local governments.

7. Effective Date of GASB Statement 51 • Requirements of this statement are effective for financial statements for periods beginning after June 15, 2009 (FY 09-10)

8. Easements • Definition - an interest in land owned by another that entitles its holder to a specific limited use or enjoyment (right to use the land). • Example – Right-of-Ways (ROWs) on County Roads • Depends on whether to County owns the land or only has use of the land

9. Easements on County Roads • Roads built prior to FY1980 • Roads built between FY 1980 and implementation date of statement • New Roads • Subdivisions

10. Roads Built Prior to FY 1980 • ROWs/Easements on roads acquired or constructed prior to FY1980 do not have to be considered.

11. Roads Built Between FY 1980 and Implementation Date • This Statement is not applicable for the retroactive reporting of intangible assets that are considered to have an indefinite useful life. • ROWs are considered to have an indefinite useful life.

12. New Road Construction/Subdivisions • When constructing a new County Road: • If the County acquires ownership of the ROW/Easement, there is not an intangible asset; land purchase/road • If the County does not acquire ownership of the ROW/Easement, the County must determine the value of the ROW/Easement and record the intangible asset.

13. Summary • Primary Focus for County Commissions: • New Roads Constructed and Subdivisions • If ROW is deeded to the County, no intangible asset; Include with cost of road • If ROW is not deeded to the County, an intangible asset exists and a value for the ROW must be determined.

14. Internally Generated Computer Software • Internally generated computer software • Hired a third-party contractor to generate the software on behalf of the government • Acquired from a third party but require more than minimal incremental effort on the part of the government to begin to achieve their expected level of service capacity, • Certain costs to develop the software must be captured and reported with capital assets.

15. Stages of Development • The activities involved in developing and installing internally generated computer software can be grouped into the following stages:a. Preliminary Project Stage. Activities in this stage include the conceptual formulation and evaluation of alternatives, the determination of the existence of needed technology, and the final selection of alternatives for the development of the software; Outlays associated with activities in the preliminary project stage should be expensed as incurred.

16. Stages of Development b. Application Development Stage. Activities in this stage include the design of the chosen path, including software configuration and software interfaces, coding, installation to hardware, and testing, including the parallel processing phase; Outlays related to activities in the application development stage should be capitalized.

17. Stages of Development c. Post-Implementation/Operation Stage. Activities in this stage include application training and software maintenance; Outlays associated with activities in the post-implementation/operation stage should be expensed as incurred.

18. GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions

19. Effective Date • For financial statements of periods beginning after June 15, 2010 (FY10-11)

20. Fund Balance Classifications • Nonspendable • Restricted • Committed • Assigned • Unassigned

21. Fund Balance-Nonexpendable • Nonspendable – includes amounts that cannot be spent because they are either • Not in spendable form – or- • Legally or contractually required to be maintained intact • Not in spendable form would include items such as inventories and prepaid amounts; long-term amount of loans and notes receivable; property acquired for resale

22. Fund Balance - Restricted • Restricted – includes amounts that can be spent only for the specific purposes • Externally imposed by creditors (debt covenants), grantors, contributors, or laws or regulations of other governments • Imposed by law through constitutional provisions or enabling legislation • Enabling legislation – authorizes the government to assess, levy, charge or mandate payment of resources and includes a legally enforceable requirement that those resources be used only for the specific purposes stipulated in the legislation.

23. Fund Balance - Committed • Committed – amounts can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority • Amounts can only be used for other purposes if the same type of formal action is taken by the government to change the specified use. • Constraints imposed on the use of committed amounts are imposed by the government, separate from the authorization to raise underlying revenue. • Not considered to be legally enforceable

24. Fund Balance - Assigned • Assigned – amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed • Constraints on assigned amounts are more easily removed or modified than those on committed amounts • Assigned fund balance includes all remaining amounts that are reported in governmental funds, other than the general fund, that are not nonspendable or restricted nor committed. • Assignments should not cause a deficit in unassigned

25. Fund Balance - Unassigned • Unassigned - residual classification for the general fund • General Fund should be the only fund that reports a positive unassigned fund balance • Other governmental funds – if expenditures incurred for specific purposes exceeded the amounts restricted, committed or assigned to those purposes, it may be necessary to report a negative unassigned fund balance

26. Stabilization Agreements • Formal arrangements for use in emergency situations or when revenue shortages or budgetary imbalances arise • Stabilization amounts should be reported in the general fund as restricted or committed depending on the source of the constraint

27. Governmental Fund Type – Definitions • General Fund – required to be used to account for and report all financial resources not accounted for and reported in another fund • Special Revenue Funds – may be used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects

28. Governmental Fund Type – Definitions • Capital Projects Funds – may be used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets • Debt Service Funds – may be used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest; should be used if legally mandated or being accumulated for future years principal and interest payments

29. Governmental Fund Type – Definitions • Permanent Funds – required to be used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs—that is, for the benefit of the government or its citizenry

30. Public Works Law Update

31. Public Works Law Code of Alabama 1975, Section 39-1-1(g) • Advertisement of Notice of Completion • Contracts under $50,000 • Contractor is not required to provide advertisement of notice of completion • The governing body of the contracting agency is required to: • advertise one time in a newspaper of general circulation in the county • post notice of final contract completion on the agency’s bulletin board for one week • require the contractor to certify under oath that all bills have been paid in full • Final settlement with the contractor may be made at any time after the notice has been posted for one entire week.

32. Update on County Bond Financing Review Form

33. Bond Financing Agreement • Definition - an agreement relating to the sale or issuance of bonds, including but not limited to: • Bond purchase agreements • Loan agreements • Refinancing agreements • Bonds sold or issued on a competitive sale basis

34. Bonds • Defined as: • Bonds • Bond Anticipation Notes • Warrants • Warrant Anticipation Notes • Indebtedness issued or entered into on behalf of the countyor by the commission for a term of at least three years

35. Disaster Monitors • Disaster Monitor – an individual who supervises the work of a County on debris removal from a natural disaster. • Is a Disaster Monitor a biddable item? • Our audit position will be “no”.

36. Questions?